How interest rate hikes affect your mortgage payments

The Reserve Bank’s second rate hike in as many months is expected to add about $133 per month to the cost of the average Aussie mortgage.

How interest rate hikes affect your mortgage payments

The central bank raised its target for the spot rate by 0.50 percentage points at its monthly meeting on Tuesday, bringing the spot rate to 0.85 percent.

If banks pass the raise in full, the average borrower with a $500,000 mortgage and 25 years to pay on their loan can expect their monthly repayments to increase by $133, according to RateCity.

If last month’s rate hikes were also considered, the repayment hikes would add $197.

Camera icon The Reserve Bank raised its target for the spot interest rate by 0.50 percentage points to 0.85 percent. Credit: News Corp Australia

Tuesday’s rate hike came after the RBA raised spot interest rates from a record 0.1 percent to 0.35 percent in May, the first increase since 2010.

According to RateCity’s calculations, the June increase would add $80 to monthly repayments on a $300,000 loan, $106 for a $400,000 loan, and $159 for a $600,000 loan.

For a $750,000 loan, it would add $199 in repayments, and for a $1 million loan, it would add $265.

The figures are based on an owner-occupier paying principal and interest with a remaining term of 25 years.

In his statement, Reserve Bank governor Philip Lowe said the rate hike would help reduce inflation in Australia, which had risen significantly and was higher than previously expected.

Camera icon The central bank noted that house prices had already fallen in some markets. NCA NewsWire/John Gass Credit: News Corp Australia

Global factors, including Covid-related supply chain disruptions and the war in Ukraine, were responsible for much of the rise in inflation.

Local factors, including a tight labor market, also contributed to upward pressure on prices, and this year’s floods also pushed costs up.

For the foreseeable future, inflation is also likely to be higher than expected a month ago due to higher gas and electricity prices and increases in fuel costs, Mr. Lowe said.

“Today’s rise in interest rates will help inflation return to target over time,” said Mr. Lowe.

“House prices have fallen in some markets in recent months but remain more than 25 percent higher than before the pandemic, supporting household wealth and spending.”

Camera IconGovernor Philip Lowe said the hike would help get inflation on target. NCA NewsWire/Jeremy Piper Credit: News Corp Australia

Mr. Lowe hinted that further increases are likely in the coming months, with the size and timing of further increases being determined by the outlook for inflation and the job market.

Sally Tindall, research director at, described the rise in repayments in June as “relatively moderate” but warned homeowners to prepare for significant increases in the coming months.

“These rate hikes will not magically cure Australia’s inflation problems,” said Ms. Tindall. “The RBA will have to rise again, possibly as early as next month, and from there, they could keep coming thick and fast to get inflation under control,” she said.

“Governor Lowe has indicated that the neutral cash rate could be around 2.5 percent. If we get there by Christmas next year, the average $500,000 borrower could see their repayments increase by $652.

“That’s like blowing up two car tires every month and having to replace them.”

Camera Icon Homeowners have been urged to do their homework and refinance if necessary. Credit: News Corp Australia

Ms. Tindall said some families would struggle to repay more over the next two years.

“It won’t be pretty, especially against rising prices for everyday necessities like food, gasoline, and energy,” she said.

She advised homeowners to finalize their mortgage payments before Christmas next year and take action now if they think they can’t make those payments.

“Just because interest rates rise doesn’t mean it’s a bad time to refinance. If you live in the home you own with a steady job and a good track record of paying off your debt, you still need to lead the way when it comes to rates if you’re willing to refinance or are at a loss. Least negotiate with your current lender,” she said.

In April 2022, average loan amounts for owner-occupied homes (including the construction and purchase of new and existing homes) rose 1.9 percent nationally to $611,000, according to the Australian Bureau of Statistics.

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Lori J. Kile
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